HC2121 Case Study Report on Case 20 Enron: Not Accounting For The Future Assessment Answer
1. Executive Summary
It is important for business to follow social responsibility and ethics in best way so that high results should be accomplished in given period of time. This is essential for enterprise to follow right value, ethics and culture. The given report is based on Enron which is regarded as American company dealing in services, commodities and energy product. This is individual assignment that is based upon case study of Enron that discusses about corporate culture of Enron to bankruptcy and involvement of attorneys, bankers and auditors to demise. In addition to this, it also highlights about CFO role in creation of problems that led to Enron’s financial problems.
2. Section 1: Introduction
Business ethics is defined as form of professional or applied ethics which focus on examining ethical principles as well as problems which arise in business environment (Ali and Rahman, 2015). On other side, social responsibility is defined as ethical theory in that individuals are accountable for action as well as civic duty of person must benefit of society. It is important for business to focus on adopting business ethics as well as social responsibility to run their activities and operations at marketplace. The given assignment is based on Enron Corporation which is American Energy, service and commodities that was founded in 1985. This is case study on Enron: Not accounting for the future. Main aim of report is to discuss about corporate culture of Enron contribute to its bankruptcy. The role of chief financial officer played in creating problem that created at Enron’s financial problems.
3. Section 2: Main Body
1. How corporate culture of Enron contribute to its bankruptcy?
The culture of organisation has importance impact on employees act. It is essential for firms to develop culture over time (Alvarado-Herrera and et. al., 2017). In this regard, Enron has developed their culture through characterised by intense regulation. It has moved towards collapse of business and they believed culture that has developed foster capacity and innovations to adapt. Here, Enron has adopted nurtured aggressive culture which has led towards high rate of employee turnover and such scenario has focus on emphasis on attainment of short term results. Management of business has formulated employee evaluation program which was performed after every six month where objectives was to enhance creativity as well as integrity amongst employees. The extensive expansion lead Enron to ventured into unfamiliar territories and formed occurrence of mistakes.
The corporate culture of Enron contributed to its bankruptcy due to using of accounting system applied by enterprise (Amran and et. al., 2017). They have adopted aggressive accounting style or culture whereby accounting officers has inflated figures in terms of financial statements. On other hand, special partnerships were formed having objective to defraud firm in negative manner. Also such partnership rendered process of accounting which was very complicated and officer of accounting did not focus record actual value in books of accounting. Team of management involved in fraudulent reporting that has manipulated revenue of enterprise and earning due to sustainability of business’s credit rating. Moreover, auditors have colluded with team of management in getting return of huge financial benefits. Enron has neglected code of ethics that is based upon respect, communication, excellence and integrity. There arise conflict of interest among shareholders and managers to earn maximize earnings.
Therefore, culture of organisation plays an important role in success and growth of enterprise at competitive marketplace. Here, Enron has followed aggressive culture that leads to bankruptcy of enterprise at marketplace and decline value and goodwill of business.
2. Did Enron’s bankers, auditors, and attorneys contribute to Enron’s demise? If so, how?
Yes, Enron’s auditors, bankers and attorneys contribute towards to Enron’s demise (Castejón and López, 2016). Due to omission lying, respective organisation has escaped away with misconduct for many years. In addition to this, all bankers, auditors and attorneys engaged with Enron were aware about problem of finance of Enron. In this regard, they have not represented accurate financial position or condition of company at marketplace. It is analysed that the people working in Enron are involved in such fraudulent acts and faced problems in negative manner. In addition to this, CFO has also plays an effective role in creating problem at Enron’s financial problems which has shown the legal implication and failure of the company resulted to the biggest financial problem throughout the time.
Moreover, Enron was regarded as top clients of Houston law business such as Elkin and Vinson (de Jong and van der Meer, 2017). The financial business required ethics as well as accountability which are important for business and irresponsibility causing major problems They have record that represent about received opinion letter in order to support legality of assigned deal. The auditors working in business possess responsibility to confirm accuracy of internal keeping as well as financial statement. In this regard, Enron’s auditor failed to maintain all accurate data and recording and involved in accounting fraud. In year 2002, Andersen found to be guilty of obstruction of justice to destroy all relevant auditing documents at time of SEC investigation of Enron Company. On other side, Merrill Lynch who is regarded as investment as well as brokerage baking business who has continued for using investment risk practices that have become reason for loss of financial to company. This is case study on Enron: Not accounting for the future which is to discuss about corporate culture of Enron contribute to its bankruptcy.
Moreover, manager, leader, auditor and other were involved in scandal of accounting fraud at Enron (Farrington and et. al., 2017). Not only CEO and manager but other people were also involved in sad demise of business. Merrill Lynch who is banker of business assists Enron in doing wrongful activities and misconduct of enterprise. The auditors, bankers and attorneys have played an active role in assisting giant fraudulent activities of Enron and impact business in negative manner. Banker and auditor worked together to make such fraudulent activities at Enron business.
Therefore, in this way, all people such as bankers, attorneys and auditors have involved themselves in fraudulent activities and operations of Enron and made accounting fraud at enterprise and leads to decline value and goodwill in negative manner.
3. What role company’s CFO play in creating problems that led to Enron’s financial problems?
Enron was regarded as biggest accounting as well as auditing business at world before it has fallen at marketplace (Husted, 2015). This has earned more than US$60 billion in terms of assets as well as collapse outcome in terms of largest bankruptcy in the history of USA. These financial problems have generated various debates and ramifications that has made in order to improve all standards as well as practices through long lasting effects at world of finance.
Andrew Fastow regarded as Chief Financial Officer (CFO) of Enron at time of scandal (Jankalová and Jankal, 2017). He has focused on playing active role in Justice Department as well as Scandal indicted him on 98 counts. CFO was charged for money laundering, fraud, obstruction of justice and faced 140 years at Jail for such role in scandal. In addition to this, he was in jail and fined for millions if convicted on all counts. Federal officials have seized $37million from money where Fastow earned money from enterprise. Also, he has denied for charges and pleaded with guilty on two counts. This is individual assignment that is based upon case study of Enron that discusses about corporate culture of Enron to bankruptcy and involvement of attorneys, bankers and auditors to demise. It has been observed that failure to comply with the applicable rules and corporate governance program may result to destruction of the company throughout the time. It has been evaluated that company has failed to maintain the transparency in its recorded financial data with its stakeholders.
Moreover, he has hid accurate financial position of business through hiding of all debts as well as unethical accounting practices (Joutsenvirta and Vaara, 2015). Also, he took help of SPE to hide $1billion of Enron’s debts that has discovered. CFO has applied unfair methods for earning $30million. He behaved in unethical or irresponsible manner and approached demise as he has not imagined in end. This has shown the critical implication of the undertaken work program and how well company has not followed the proper implication of the undertaken accounting and corporate governance program through the time.
The financial business required ethics as well as accountability which are important for business and irresponsibility causing major problems (Knudsen, Moon and Slager, 2015). It is very important for financial business to adopt responsibility as well as lack of accountability leads towards negative impact of enterprise.
Therefore, in this way, CFO played role in creating problem that led to Enron’s financial problems and has introduced several issues at market.
4. Section 3: Conclusion
The report concluded that Enron has faced bankruptcy or scandal in terms of finance. It has followed culture of aggressive that leads to create more number of employee’s turnover and created impact to business in negative manner. Also, bankers, attorneys and auditors have helped Enron in such demise as they also earned money from it. The people working in Enron are involved in such fraudulent acts and faced problems in negative manner. In addition to this, CFO has also plays an effective role in creating problem at Enron’s financial problems.